Economists said while the MPC opted against a pre-emptive cut on Thursday, rates could come down as early as next month, with two cuts - to 5.25% - expected by next summer.

The committee's decision is thought to have been a close call, given recent economic indicators and further turmoil in financial markets.

London's leading share index closed deep in the red on Wednesday in response to heavy falls on Wall Street as further fears over the credit crunch shuddered through stock markets.

Tighter lending conditions in the wake of the credit squeeze and Northern Rock crisis have already forced up the cost of some mortgages.

And Halifax said on Thursday that house prices fell for the second month in a row during October, falling by 0.5% - the first consecutive monthly decline in prices since spring 2005.

Figures earlier this week from the Office for National Statistics also showed a sharp drop in manufacturing output between August and September and the Chartered Institute of Purchasing and Supply's latest figures showed a surprise softening in the service sector last month.

Just a day later, the British Retail Consortium (BRC) gave a downbeat assessment of high street spending, with its October survey finding that sales had slowed to their lowest level in almost a year.

The BRC reacted with disappointment to Thursday's decision to freeze rates. Kevin Hawkins, director general of the BRC, said: "It's disappointing that the Bank has failed to deliver the shot in the arm customers and retailers desperately need."